China Evergrande Group has amassed $300 billion of debt and its founder/chairman Hui Ka Yan was placed under police surveillance back in September, which could send shockwaves through Chinese financial markets. A Hong Kong court recently ordered China Evergrande Group’s liquidation, sending shockwaves through Chinese markets.
Wong stated outside court that the winding-up order only affects the parent company and none of its subsidiaries, though analysts remain doubtful that creditors will see much return given that 90% of assets reside on mainland China.
China’s Evergrande shares halted after Hong Kong court orders liquidation
Evergrande Property Development Ltd was ordered to be wound down by a Hong Kong court after it failed to produce an acceptable restructuring plan. Judge Linda Chan’s ruling marks a long process and could see its offshore assets liquidated, yet how this decision will impact construction work done on mainland China remains unknown due to different legal standards than Hong Kong.
China’s property crisis is epitomized by this firm. With an estimated $300 billion debt and multiple scandals surrounding them, they became the face of China’s property woes and defaulted on their offshore debt in 2021, sending shockwaves through global markets.
Shawn Siu, its executive director, expressed regret over the ruling but noted that its Hong Kong arm was independent from its mainland operations and would do everything possible to safeguard domestic operations and property market stability. Unfortunately, however, the move by Hong Kong court dealt a blow to China’s already struggling economy; where growth is slowing significantly with devaluing currency and stock market sell-off.
Judge Linda Chan said the company had failed to come up with a viable restructuring plan
Judge Linda Chan found Evergrande to have failed to submit a viable restructuring plan, and believes continuing operations would damage creditors’ interests. Most of its debt owes to mainland Chinese lenders who lack legal recourse when trying to recover it; foreign creditors, who can sue in Hong Kong more easily for repayment.
Chan’s ruling marks the conclusion of a two-year legal dispute between Evergrande, which has accrued more than $325 billion in liabilities, and China’s courts. This news could send shockwaves through China’s financial markets amid slowing economic activity and an unstable stock market.
Shortly after receiving this news, trading of Evergrande shares was suspended immediately following this ruling. Evergrande directors will no longer control the firm and a provisional liquidator will be appointed, which should take several months. Investors remain uncertain as to whether Evergrande can repay its debts.
The company’s debts are estimated to be around $325 billion
China’s property industry is a cornerstone of its economy, and Evergrande’s liquidation could send shockwaves through financial markets worldwide. Evergrande shares dropped sharply on Monday as investors anticipated the impact of Evergrande’s court order on both Chinese housing market and economy.
The court order represents an immense setback for the developer, who has been at the heart of China’s property crisis ever since first defaulting on an offshore dollar bond in 2021. After two years of meetings and discussions regarding restructuring plans, it remains unable to come up with viable proposals.
However, it remains uncertain to what extent Hong Kong court’s ruling will affect Evergrande’s operations in mainland China, where they have an established presence. According to Shawn Siu’s statements to local media outlets regarding Evergrande’s operations there, no Hong Kong court judgment would automatically apply there.
The company’s assets are valued at around $8 billion
China Evergrande has been grappling with how to restructure its debt since Chinese regulators put an end to excessive borrowing in 2020. Now Evergrande is among the latest developers that has defaulted on significant obligations due to excessive borrowing.
China’s property crisis has taken center stage with this firm being at its epicenter, creating havoc across global financial markets and Asia’s economies. They owe over $300 billion in liabilities but have failed to recoup investments from thousands of home buyers who made upfront payments for apartments they were purchasing from them.
Siu Shawn, its executive director, described the court decision as regrettable but would have no impact on its mainland operations. As Hong Kong-listed unit was separated from mainland business, overseas assets of the company are unaffected by this ruling either, according to Siu. However, foreign investor confidence could further diminish in China and cause concerns over property sector health – which accounts for one fifth of China’s economy.
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